“Everyone” frets over financial advice in the Fintech Age. Regulators set out to “protect the consumer”, worthy bodies talk no end about the need to protect “people” (never themselves oddly – generally they imply (/mean) folks of lesser education/wealth) and the rest of us are just confused over the labyrinthine rules around tax, savings and investments.
Needless to say a myriad on rules and regulations and the implicit costs of this suprastructure all act together in a Kafkaesque way to produce the opposite result – known as “the advice gap”.
In Fintechland breathless media and PR firms high on sugar, caffeine and other stimulants promise us a golden era of so-called “roboadvice”.
I am delighted to be joined today by Dan Kiernan Research Director at Intelligent Partnership “the UK’s leading provider of research, training and events on Alternative Investments” to cut through all this and to give us insights into why advisers are not recommending eg P2P to their clients when it has outperformed bank deposits for more than a decade.
On the show today we discuss all of the above and:– classic understated self-intros of our Fintech times
– whether ju-jitsu is dancing, fighting or both
– how smoking took his career forwards
– in the UK financial advisers have needed to be authorised/regulated since the early 1980s; there are somewhere around 20-30,000 regulated financial advisers
– two types IFAs – independent financial advisers – and restricted financial advisers (formerly known as a “tied adviser”)
– stretch from sole trader to nationals, big independent firms, conglomerates of tax, accounting et al
– the biggest single change was the RDR in 2012 – Retail Distribution Review.
– this was a real game changer – intending of course to improve advice; removing commission payments (broadly on “investment products”) and moving remuneration to fees only [& of course following the law of unintended consequences this has increased the “advice gap” (as folks are reluctant to pay high prices for advice – the cost of which of course is inflated by following the mass of regulation)]
– “investments” in the context of the RDR include pensions, equity release, life policies, unit trusts and other investments. For some other financial products (such as insurance or a mortgage) advisers are still allowed to be paid by commission.
– good effects have been – financial advisers are very highly qualified, independent and fairer [but at the cost above]
– education to IFA level takes around 3yrs and thousands of pounds (and you need experience along the way)
– this education of course created a border of kosher and non-kosher – anything new of course (eg & esp P2P) by definition being non-kosher
– “there are some real structural obstacles that have to be overcome to recommend P2P for example”
– eg the compliance team has to approve it (?!) .. but the level of due diligence standards expected hasn’t been defined
– FCA approval itself is not enough to render something “kosher” (!!). There is an infamous case – Keydata – which was FSA approved, the FSA knew plenty of bad stuff about Keydata but carried on approving it, the firm collapsed and then the FSA went after the IFAs for recommending Keydata :-O
– “the outcome of it all is the adviser has more risks on the downside than the upside”
– “it’s better for him to be conventionally wrong than unconventionally right”
– there is a precedent of getting “non kosher food” labelled kosher – tax efficient investments [EIS & VCTs] – a long education process which took 5-10 yrs but now means that IFAs do recommend them
– the importance of a bureaucratic audit trail to “prove” you have done the right thing
– “only the rich can afford advice really which is an unfortunate consequence of this regulation”
– appearance vs content – you can of course recommend “investment trusts” as they are kosher – even if they invest in P2P which isnt…
– roboadvice is a silly term as its not advice but automated asset allocation – doesn’t come anywhere near what IFAs do
– how Monzo’s direction (see LFP067) might be getting much nearer real financial advice than so-called roboadvisers
– either level of fintech “advice” – be it simple asset allocation way of savings or more sophsiticated range of financial help – might be a step on the ladder to taking more sophisticated advice at some point in time
– Intelligent Partnership do 12 reports a year (30-40,000 words long), 6 big industry reports, which go out to 6/7,000 advisers – all of which can be downloaded for free at their website
– these are sponsored by investment providers who get a page of editorial in the reports and get their name spread widely
– In Review, a sister company, 3rd party due-diligence on alternative investments
– the answer to everything isn’t an app – it can be old fashioned things like a good report delivered online or attendance at educational events
And much much more 🙂
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